Move to tighten lending criteria condemned

Kathmandu, December 25

Bankers have expressed their reservations against the recent move of Nepal Rastra Bank to tighten lending standards for auto and personal home loans.

Stating that the NRB’s move — which requires banks and financial institutions to maintain the debt service to gross income ratio on personal loans, housing loans and hire purchase loans at 50 per cent — will directly hit loan demand and disbursement, bankers have asked the central bank to revoke its direction.

Issuing a circular yesterday, NRB had barred BFIs from floating personal, housing and hire-purchase loans amounting to more than half the income of the borrower. The circular has also made it mandatory for BFIs to seek income certificates and tax clearance certificates from the borrowers of such loans.

“As BFIs have their own policy on issuing loans, implementation of such provision will directly affect loan disbursement from BFIs,” said Bhuwan Dahal, chief executive officer of Sanima Bank, adding that bankers will discuss the issue with the central bank.

Gyanendra Dhungana, president of Nepal Bankers’ Association — the umbrella organisation of 28 commercial banks — said the NRB’s recent direction was impractical, especially the provision which sought tax clearance certificate from borrowers.

“Borrowers rarely come up with tax clearance certificate of their income. It is not possible for borrowers to submit tax clearance certificate of money they have acquired through remittance or house rent,” said Dhungana.

Meanwhile, NBA is also preparing to send an official letter to the central bank asking it to make amendments to the recent circular.